Stockton, Calif. Largest US City in Bankruptcy Protection

Photos.com/Thinkstock(STOCKTON, Calif.) -- A federal judge Monday gave the city of Stockton, Calif., the green light to enter bankruptcy protection.

With a population of close to 300,000 people, Stockton is now the most populous city in the nation to enter bankruptcy.

Creditors argued that the city should have been made to come up with more funds, but Judge Christopher Klein approved the city for bankruptcy protection, saying the creditors had acted in bad faith and had not paid their share of costs for the 90-day mediation, according to the Los Angeles Times.

The city's attorneys blame bad decisions, foreclosures and property tax reductions for the bankruptcy. But the city's creditors say the Stockton should have cut payments to the state pension.

Stockton's largest debt is the $900 million owed to the California Public Employees Retirement System (CalPERS) to cover pensions, reports the L.A. Times. Attorneys representing Stockton say city services have been cut to the bone, all while the city continues paying into CalPERS.

The case will likely be under close watch for precedent as to whether U.S. bankruptcy law will trump state laws, the Times reports.